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Why Employers Should Consider Self-Funded Insurance Plans

As more employers look to reduce healthcare costs and expand their plan and program options, the self-funded model is proving to be a win-win for employers, their third-party partners, and employees because of the flexibility, cost savings, and increased transparency it offers. Self-funded insurance has been gaining popularity throughout the U.S. over the past 20 years, with 65% of the U.S. workforce covered by a self-funded insurance plan in 2021.

What is self-funded insurance?

With self-funded insurance, the employer assumes the financial risk and provides health benefits directly to their employees, in contrast with the fully-funded model, through which employers purchase insurance from an insurance company, which manages the financial risk on behalf of the employer. Self-funded insurance plans give employers more control over how their health plans are designed. Through customization, employers can better meet the health needs of their workforce and reduce overall claims expenses for their population.

Flexibility, cost savings, and increased savings are some of the greatest benefits of moving to a self-funded plan. Here are some things to consider before moving plans.

Does self-funded insurance offer tailored plan design options?

Employers can make more strategic decisions about plan options, have access to a wider network of providers and vendor partners, and can become part of a proprietary network. If health claims are lower than expected, employers can transfer those savings to optimize their health options by introducing and expanding services like wellness programs, patient advocacy, clinical care management, fertility care, maternal care, and behavioral health programs.

An additional advantage is unbundling – being able to pick and choose specific services helps ensure employers are getting the best options at the best price, along with the flexibility to pay for only the products they need to best support their employees.

Does self-funded insurance offer better health care choices?

Self-funded insurance third-party administrators (TPAs), like HealthComp, are important partners to help support employers with plan administration and plan design, as well as facilitate enrollment and processing of medical claims. TPAs help manage financial risk through cost-containment solutions, such as pharmacy benefit management, clinical care management, and employee advocacy programs.

What is a pharmacy benefit manager and how can they improve cost management?

A pharmacy benefit manager, or PBM, is like a third-party administrator but only in connection to a prescription drug program. The PBM is primarily responsible for processing and paying prescription drug claims. In addition to paying these claims, they can negotiate discounts and rebates with drug manufacturers, contract with pharmacies, and develop and maintain the drug formulary.

How does self-funded insurance improve the employee experience?

On the most basic levels, there is no difference in experience between a fully insured plan and a self-funded insurance plan. Employees will still receive member ID cards, they will have access to an online portal, a health plan to view covered and non-covered services, and they will go to the doctor and have their claims processed as they normally would.

There are, however, some areas where employees will feel the difference. Self-funded insurance offers the potential for greater savings to employees. Employer savings can be redistributed as additional benefits for employees like a wellness program or health plan discounts for employees. Employers may offer incentives for participation in a wellness program. Employees may have access to better-quality care and doctors, lower pharmacy costs, and lower out-of-pocket costs and copay. With a self-funded plan, employers can also offer programs that cater to their employee population directly instead of relying on a one-size-fits-all approach through a fully insured plan.

Combined with a TPA, self-funded insurance plans can help employers better manage their health care costs as they are subject to fewer regulations and thus have lower administrative costs. The costs of employee health plans are also based on the number of employees enrolled in the benefit plan each month and the organization’s overall health. The healthier an organization’s employee population is, the lower the plan costs are for the employer. Implementing programs like clinical care management and patient advocacy through a TPA can help ensure an overall healthier, and thus less expensive, employee group.

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